Real estate developers are in no mood to listen to Finance Minister P Chidambaram when it comes to cutting prices. Chidambaram had recently made a point, through bankers, that developers should sell their unsold inventory at a lower price. Builders argue they do not have the margins to reduce prices, given the increasing input costs, high interest rates and taxes. The realtors feel it is extremely unrealistic on the part of the Government to expect the developers to cut housing prices.
At a time when sharp rise in prices and interest rates have affected the real estate sector adversely, this directive has come as a bolt from the blue for the developers. According to a survey, the slowdown in the realty sector is likely to bring down its contribution to the GDP to below 8% in 2011-12 as against 8.1% in the last fiscal year. According to a survey conducted by industry body Assocham among the industry players, the slowdown in the sector is mainly due to an unregulated price hike in key construction material, together with rampant shortage of workforce at all levels.
The industry is also facing severe shortage of about 40% skilled construction workers. Because of this, construction projects are getting delayed or cancelled all over the country. So in such a scenario, the developers are in position to cut the prices of houses. Even though the Government has realized that real estate kick-starts the economic development, it should now focus on bridging the demand-supply gap by lowering the rates of interest and CREDAI has recently suggested that home loans be given at 7 percent for the low income groups and economically weaker sections.
It is estimated that out of the huge investment in the organized real estate industry funding by the commercial banks is negligible. Banks and finance companies are still wary of financing real estate sctor as RBI always keeps it in the negative list.
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